Ruff v. Weintraub

• Decision Date: 29 January 1987
• Citation: 519 A.2d 1384,105 N.J. 233
• Parties: , 55 USLW 2435 Monica L. RUFF and Jack H. Ruff, Plaintiffs-Respondents, v. David M. WEINTRAUB, Defendant-Appellant, and Emanuel Weintraub Associates, Theresa L. Ogar, and Jessie Williams, Defendants.
• Court: New Jersey Supreme Court

Page 233

105 N.J. 233

519 A.2d 1384, 55 USLW 2435

Monica L. RUFF and Jack H. Ruff, Plaintiffs-Respondents, v. David M. WEINTRAUB, Defendant-Appellant and Emanuel Weintraub Associates, Theresa L. Ogar, and Jessie Williams, Defendants.

Supreme Court of New Jersey.

Argued Sept. 22, 1986.

Decided Jan. 29, 1987.

John G. Tinker, Jr., Morristown, for defendant-appellant (W. Stephan Leary, attorneys).

Lewis Stein, Succasunna, for plaintiffs-respondents (Nusbaum, Stein, Goldstein & Bronstein, attorneys).

Joseph Buttafuoco, Kearny, submitted a letter in lieu of brief on behalf of respondent Monica L. Ruff in defense of the counterclaim.

The opinion of the Court was delivered by

STEIN, J.

We granted certification, 104 N.J. 416, 517 A.2d 414 (1986), to decide whether a jury in a personal injury action should be instructed that the proper measure of damages for lost future wages is net income after taxes. Since evidence of lost income is often introduced in the form of gross rather than net wages, we must also determine whether evidence of the plaintiff's future tax liability is admissible. In addition, this case presents the issue decided today in Bussell v. DeWalt Products Corp., 105 N.J. 223, 519 A.2d 1379 (1986), whether a trial court must instruct the jury that personal-injury damage awards are not subject to federal or state income taxes.

In this case, the trial court refused to instruct the jury that personal-injury damage awards are not taxable, and declined to instruct the jury that net rather than gross income was the appropriate measure of damages. The court also barred defense counsel from cross-examining plaintiff's economist on the issue of taxes. The Appellate Division held that the trial court's rulings were proper. We disagree. Accordingly, we reverse the Appellate Division and remand for a new trial on damages.

The other issue raised is whether it is appropriate to award prejudgment interest on damages for future losses. The trial court awarded prejudgment interest on the entire damage award, pursuant to Rule 4:42-11(b). The Appellate Division affirmed. Since we agree that this issue is governed by Rule 4:42-11(b), we affirm this portion of the Appellate Division's decision.

I

This case arises out of a four-car accident that took place in January, 1981, on Route 80 West in Rockaway. The plaintiff, Monica Ruff, was driving in the center lane when she came upon the car of defendant David Weintraub. Weintraub's car was moving very slowly and was apparently disabled. Unable to pass due to heavy traffic, Mrs. Ruff remained in the center lane until the Weintraub vehicle stalled, coming to a complete stop. Mrs. Ruff exited her car, and walked forward to Weintraub's car to offer assistance. She then returned to her vehicle. Immediately after, a car driven by defendant Theresa Ogar and another driven by defendant Jessie Williams collided with Mrs. Ruff's car, which in turn collided with the Weintraub vehicle.

Mrs. Ruff suffered serious injuries, requiring multiple operations. At the time of the accident, she was 49 years old and had been working full-time as a tri-lingual secretary. She is no longer able to work due to her injuries.

Mrs. Ruff and her husband, Jack Ruff, filed suit against David Weintraub, Emanuel Weintraub Associates, Weintraub's employer and owner of the car he was driving, Theresa Ogar, and Jessie Williams. The trial was held in March, 1984. During the trial, plaintiffs offered the testimony of Dr. Richard Ruth, an economist, as to the computation of the present value of Mrs. Ruff's lost earnings. Employing the total-offset method, ¹ Dr. Ruth testified that to compute the present value of lost future wages, the jury should multiply the number of years remaining in the plaintiff's work-life by her annual income. ² Testimony had previously been elicited as to Mrs. Ruff's gross earnings at the time of the accident. Subsequent to Dr. Ruth's testimony, a personnel officer from Lutheran World Ministries, Mrs. Ruff's employer, testified that at the date of trial Mrs. Ruff's gross salary would have been $19,200.

Defense counsel, apparently concerned about the combined effect of Dr. Ruth's testimony with the prior testimony as to Mrs. Ruff's gross income, asked Dr. Ruth whether he had taken into account the fact that various federal and state taxes would have to be deducted from Mrs. Ruff's gross income. The trial court refused to allow the defense to pursue this line of questioning, and later ruled that gross rather than net income was the proper measure of damages. Although the court did allow plaintiff's W-2 form to be admitted as an exhibit, it was admitted only to show plaintiff's gross income.

Near the end of the trial, defense counsel made several requests to charge. Among them was the following:

You should consider the net earnings of the Plaintiff after taxes as the measure of damages to be awarded for future loss of income. The reason for considering net income, rather than gross income, is that Plaintiffs have suffered a loss of income only to the extent of the portion of Plaintiff, Monica Ruff's salary received after taxes.

Defense counsel requested that if the court did not give this charge, the following charge be given:

You are to assume that any award made to Plaintiff as damages in this case, whether in compensation for past or future loss of income found by you to have resulted from the negligence of the Defendants or in compensation for personal injuries sustained by her, is not subject to income tax or other tax. Should you find that Plaintiff is entitled to an award of damages, then you are to follow the instructions already given by the Court on measuring those damages and in no event should you either add to or subtract from that award by any speculation concerning taxes.

The trial court declined both of these requests. Instead, it instructed the jury as follows:

I am telling you that you must consider gross wages. You don't take into consideration Social Security deductions and Blue Cross-Blue Shield deductions and income tax deductions. You're to concern yourselves solely with gross wages that the plaintiff will not earn as a result of the accident in question.

The defense objected to this portion of the charge.

The jury returned a verdict of $650,000 for Mrs. Ruff. Negligence was apportioned as follows: Theresa Ogar: 70%; David Weintraub: 25%; Jessie Williams: 5%. Monica Ruff and Emanuel Weintraub Associates were found not to have been negligent. The $650,000 award included $300,000 for lost wages (past and future), $300,000 for pain and suffering, and $50,000 for medical expenses. Jack Ruff was also awarded $100,000 for loss of consortium. The trial court then added $219,682 in prejudgment interest to Monica Ruff's award, and $33,798 to Jack Ruff's award.

The Appellate Division affirmed. The court held that it was proper to exclude evidence and refuse to charge the jury on the effect of income taxes on future wages, relying on Scalise v. Central R.R. Co., 129 N.J.Super. 303, 323 A.2d 525 (App.Div.1974). The court also upheld the assessment of prejudgment interest on the entire award, relying on this Court's decision in Busik v. Levine, 63 N.J. 351, 307 A.2d 571 appeal dismissed, 414 U.S. 1106, 94 S.Ct. 831, 38 L.Ed.2d 733 (1973).

II

In Tenore v. Nu Car Carriers, 67 N.J. 466, 341 A.2d 613 (1975), we held that the proper measure of damages for lost income in a wrongful-death action is the plaintiff's net income after taxes. Id. at 494, 341 A.2d 613. Accordingly, we also held that defendants must be given an opportunity to introduce extrinsic evidence and cross-examine witnesses concerning the deceased's future income tax liability. Id. We expressly limited the decision in Tenore to wrongful-death cases, deferring a decision on its applicability to personal-injury cases. Id. at 494 n. 27, 341 A.2d 613. We now hold that the proper measure of damages for lost income in personal-injury cases is net income after taxes, and that evidence of the plaintiff's future tax liability may be introduced by the defendant.

Our decision is based on the principle that damages in personal-injury actions should reflect, as closely as possible, the plaintiff's actual loss. Tenore, supra, 67 N.J. at 477, 341 A.2d 613. If the plaintiff in this case had not been injured, and continued to work, her future earnings would have been subject to taxes. The amount available for her use would have been her net income. However, damage awards in personal-injury actions are not subject to state or federal income taxes. 26 U.S.C. § 104(a)(2); N.J.S.A. 54A:6-6. Thus, if the plaintiff is allowed to recover her gross wages, she will be receiving more than she would have had she continued work. Put simply, "If plaintiff gets, in tax free damages, an amount on which [s]he would have had to pay taxes if [s]he had gotten it as wages, the plaintiff is getting more than [s]he lost." 2 F. Harper & F. James, The Law of Torts § 25.12 at 589 (1986) (hereinafter Harper & James).

This reasoning has been used in a number of state and federal wrongful-death cases to require that the computation of damages for lost future wages be based on net rather than gross income. See, e.g., Norfolk and Western Ry. Co. v. Liepelt, 444 U.S. 490, 100 S.Ct. 755, 62 L.Ed.2d 689 (1980); Brooks v. United States, 273 F.Supp. 619 (D.C.S.C.1967); Curtis v. Finneran, 83 N.J. 563, 417 A.2d 15 (1980); Tenore v. Nu-Car Carriers, supra, 67 N.J. at 484, 341 A.2d 613. The same reasoning should apply in personal-injury cases whenever damages are awarded for lost future income. See Fanetti v. Hellenic Lines Ltd., 678 F.2d 424, 431 (2d Cir.1982), cert. denied, 463 U.S. 1206, 103 S.Ct. 3535, 77 L.Ed.2d 1387 (1983) ("Focusing on after-tax earnings is an exercise in economic fairness; by this decision we extend it at least to all federal law claims for future lost wages."); accord Shaw v. United States, 741 F.2d 1202, 1206-07 (9th...